Satellite firm Avanti says Africa to drive growth

DUBAI (Reuters) - London satellite firm Avanti Communications Group Plc (AVN.L) expects Africa to provide the bulk of its revenue within five years as pent-up consumer demand for broadband and phone operators’ hunger for network capacity drive sales on the continent.

Loss-making Avanti provides wholesale data communication services and operates two satellites - the Hylas1, serving Europe, and the Hylas2, serving the Middle East and much of Africa. It aims to launch a third satellite to cover West Africa in 2015.

Two more satellites will boost the company’s Africa capacity as well as potentially expand coverage to Latin America and South Asia, David Williams, Avanti Communications’ chief executive, told Reuters.

He declined to say when these would launch, but said he expects Africa to provide the bulk of the company’s revenue in five years.

“This is the decade of African opportunity,” said Williams, a former banker who founded Avanti in a spare room a decade ago. “It’s difficult to break into China, Russia and India, whereas the thing I love about Africa is that you have a continent made up of a large number of small countries, which typically present much lower market access risk.”

He said Africa’s improved corporate governance and relatively low sovereign debt meant it was an ideal time to invest in the continent.

Avanti’s main business units are enterprise services, which provide broadband capacity to government or corporate clients, and carrier services, which provide network capacity to mobile telecommunications operators. Its two other smaller segments are consumer broadband and defence and security.

“You can sell a lot of capacity very quickly in carrier services. It might be the biggest source of revenue in the next couple of years,” said Williams. “Broadband takes time to build revenues because the dishes have to be installed one at a time by our service providers and we find that the enterprise jobs tend to provide chunkier revenues slightly faster.”

Nevertheless, he cites the long-term potential for consumer broadband in Africa, with about 340 million people in sub-Saharan Africa living beyond the reach of fixed-line fibre networks, according to a report from the Commonwealth Telecommunications Organisation.

“Although it takes time to sign them up, over a three-year period the demand will turn into big revenues,” said Williams. “It takes about three to four years to plan, finance, design, build and activate a satellite, so we’re already thinking ‘where will we need capacity and for what markets?’ Consumer broadband in Africa will probably be a very big driver in five to seven years time.”

Avanti was the first company outside of North America to use the high-frequency “Ka” bandwidth, Williams said.

The company on average sells 11 million British pounds of future capacity per month, but it reported a widening full-year pre-tax loss of 16 million pounds and its shares have fallen about 64 percent from a 2010 peak.

“We have to encourage our investors to understand the creation of value at an infrastructure business like Avanti happens over a long period of time. It’s not a big bang,” said Williams. “Avanti was a scrappy start-up and it’s forced its way into a market that looked previously closed. The incumbents have been slow to move into the Ka band. They’re very conservative in protecting their existing business, which is mainly TV.”

Satellite operators have licences that are regulated by the International Telecommunication Union and are designated in specific orbital positions with Avanti’s at 33 degrees west and 31 degrees east.

“There is real demand among satellite operators for access to spectrum and Avanti has definitive rights in those positions, which I think one day investors will realise have higher value,” said Williams.